Vlad Rusz is a CPA at Centaur Digital Corp, helping busy business owners efficiently manage their accounting systems.
For many business owners, preparing their taxes at the end of the year is a monumental headache they put off until the last minute. But it doesn’t have to be. There are simple steps one can take to smooth the process, not just for you but for your tax preparer, too.
While some firms assist with most of these steps, not all tax preparers are willing to provide this service. If you want a smoother experience, be organized when you get your taxes prepared, and the whole process will be much more enjoyable. This will also help ensure that you don’t inadvertently omit information or miss potential deductions.
List all documents from last year.
Begin by looking at all tax documents received in the previous year. This will give you a starting list of what to expect in the mail, or which website(s) to check for your tax documents. I typically provide this list to my returning clients even before they fill out a tax organizer, as most of the time, the tax forms you received last year will be the same ones you will receive this year.
Add new accounts.
After you have your list of tax documents from last year, add any new accounts you opened that might have tax documents. Examples include savings accounts that paid you interest, brokerage accounts, a new mortgage or a new freelance gig you did. Be sure to also cross off any tax documents from accounts that you closed in the prior tax year, plus any one-off tax documents you received that you don’t expect to receive again this year, like an IRA rollover.
Determine new income sources.
Tax rules are constantly changing, and it can be hard to determine if you will have a tax document for a new income source. If you changed jobs, started a new freelance or gig economy job or made money in any other way, like gambling, it’s a good idea to let your tax preparer know about it. While not all income sources come with tax documents, they all must be reported on your tax return.
Prepare profit and loss statements.
There are income types like real estate rentals and businesses that not only require reporting of the gross income you received but also allow deduction of expenses to offset that income. Typically, this is summarized in a P&L statement. Depending on the complexity of the business, this might be something you can tackle on your own, or you may need to outsource to an accountant to prepare. Don’t neglect preparing a complete P&L if you want to minimize the amount of tax you pay.
Use consistent file names.
Gone are the days when people dropped off a shoebox full of receipts and tax documents to their tax preparer. Covid-19 kicked most people into the 21st century, where most documents are exchanged electronically. Be nice to your tax preparer and your future self and properly name each file. A simple convention to use is [Year] followed by [Tax Form Number] followed by a brief description—for example, “2024 1098 Mortgage Interest.”
Provide all tax docs.
Now that you have your list and your tax documents in order, send them to your tax preparer. But what about a letter you received from the IRS last year? Or a tax form you received that your preparer never asked for before? While there are forms that are information only, it’s best practice to send your tax preparer everything and let them determine what has to be included in the tax return.
These six simple steps should help you stay organized and make tax season a breeze. Some tax preparers will guide you through this process and ensure completeness, but others might solely rely on the information you send them. After all, if you omit or forget to send a tax document, they can just charge you again later to amend your tax return. Your taxes are more your responsibility than your tax preparer’s, so take charge of the process to ensure your tax preparer gets all the information needed.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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